Slower-than-expected sales fall offers comfort to high street shops

Some of the biggest names on the high street have embarked on a round of deep discounting to boost sales in the run-up to Christmas as official figures reveal that sales in the shops and on-line fell by 0.1 per cent in October – a better-than-expected result and one that baffled many observers.

The Office for National Statistics (ONS) data showed food sales held up relatively well, but with a particularly marked fall – by 1.1 per cent – in non-food sales, indicating that discretionary spending is now taking a hit from the squeeze on household budgets. Volumes for household goods and clothing were down by 1.5 per cent and 3.4 per cent respectively.

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The figures also confirmed that many retailers are having to slash prices to attract custom. The Bank of England reported on Wednesday that "fewer consumers were treating shopping as a leisure activity".

The ONS data is puzzlingly bullish by recent standards. The vast bulk of recent evidence suggests that the decline in consumer confidence – running at 30-year lows on some measures – has affected trade by much more. Surveys from the British Retail Consortium (BRC), the Chartered Institute of Purchasing and Supply, the Bank of England and the CBI have suggested that retailers are having a more challenging time. The BRC said the ONS figures failed "to convey how tough conditions are for customers and retailers".

Alan Clarke, UK economist at BNP Paribas, was equally sceptical. "Surveys are weak, consumer confidence is at rock bottom, and yet retail sales manages to post just a 0.1 per cent month-on-month contraction," he said. "What really hurts is losing your job. Unemployment is now shooting higher, and we believe that this will be the straw that breaks the camel's back and lead to a bloodbath in the retail sales numbers. It is a long time overdue, but we are convinced it is coming."

An increasing number of retailers are having to resort to "flash" sales and other tactics to separate cash-strapped customers from their money. Marks & Spencer yesterday cut prices by 20 per cent in its clothing and homewares departments in its biggest one-day promotion for four years. Debenhams and Bhs were also discounting stock this week and a range of retailers including Gap, Oasis and Warehouse issued "secret sale" and "friends and family" vouchers. Debenhams said the sector was facing "the worst Christmas we have ever had".

However, some chains have been doing better. Halfords, the country's biggest bike retailer, said profits rose in the first half as more people cycle to work and opt to repair vehicles rather than buy new ones. Against a tumbling market, shares in Mothercare also rose after it raised its dividend by a quarter. Discount stores such as Aldi and charity shops have also bucked the depressed trend.

The gloomy news about retail sales came as the OECD declared that the world's most advanced economies are now collectively in recession, and the UK's public finances were reported to be in an even worse shape than feared, as government borrowing runs 84 per cent higher than last year.